Tariffs: Pros and Cons

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Pros of tariffs are as follows. Tariffs increase the cost of imports and this helps protect the foreign exchange reserves of a country. There are several countries that are facing adverse balance of payments problems. These countries can place tariffs on imports and these can reduce the demand for imports. Another pro of tariffs is that the government collects tariffs to support its functions. Tariffs can provide an important source of revenue for the government. The government directly benefits from tariffs. For instance, if a government is keen on reducing budgetary deficit, levying tariffs can increase its revues and reduce budgetary deficit.
The key pro for tariffs is that domestic producers who make goods directly benefit from introduction of tariffs or increase in tariffs. The imposition of tariffs on imported goods makes locally produced goods more attractive. The domestic producers are protected from cheaper imports (c). The main pro is that tariffs discourage foreign competitors and so provide more opportunities for local industries. When the local industries become profitable they invest in more manufacturing which increases employment and domestic wealth creation. A key argument in this context is that tariffs allow job retention and local manufacturers are encouraged to employ more people to produce and sell products. Prevention of job loss has two aspects. First tariffs allow local industries to grow and local manufacturers do not lay off workers. Second, strong competition from foreign makers forces local manufacturers to lay off workers. This problem is avoided when tariffs are imposed and foreign goods cannot compete with local goods. For example when large scale foreign cars were imported into the United States they competed with US made cars, this reduced the production of US made cars and the car makers were forced to lay-off thousands of workers. This problem could have been avoided if heavy tariffs had been imposed on the cars imported into the United States. When tariffs are imposed the overseas producers becomes discouraged and this leads to minimal trade with the US companies(d). The main pro is that domestic companies have some disadvantages. Their costs are higher because of higher costs of raw materials, higher cost of labor, and higher taxes. When tariffs are imposed on ...